India’s current account deficit (CAD) widened sequentially to $9.2 billion or 1.1% of the gross domestic product (GDP) compared to $1.3 billion in Q4 FY23 (0.2% of GDP) for the quarter ending in June 2023 (Q1FY24).
For the year-ago period, CAD was $17.9 billion, or 2.1% of the GDP.
Reserve Bank of India (RBI) in a statement said the quarter-on-quarter widening of CAD was on account of higher trade deficit coupled with a lower surplus in net services and decline in private transfer receipts.
Net services receipts decreased sequentially, primarily due to a decline in exports of computer, travel and business services, though remained higher on a year-on-year (y-o-y) basis.
Private transfer receipts, mainly representing remittances by Indians employed overseas, moderated to US$ 27.1 billion in Q1:2023-24 from US$ 28.6 billion in Q4:2022-23 but witnessed an increase on a y-o-y basis.
RBI in its report also saif the net outgo on the income account, primarily reflecting payments of investment income, declined to US$ 10.6 billion in Q1:2023-24 from US$ 12.6 billion in Q4:2022-23, though higher than a year ago.
Status of foreign portfolio
RBI mentioned that in the financial account, net foreign direct investment decreased to US$ 5.1 billion from US$ 13.4 billion a year ago.
Net foreign portfolio investment recorded inflows of US$ 15.7 billion as against net outflows of US$ 14.6 billion in Q1:2022-23.
While the net external commercial borrowings to India recorded an inflow of US$ 5.6 billion in Q1:2023-24 as against an outflow of US$ 2.9 billion a year ago. Non-resident deposits recorded net inflows of US$ 2.2 billion as compared with US$ 0.3 billion in Q1:2022-23.
CAD widening much anticipated
“India’s 1Q CAD came in line with our expections. The widening was expected amid higher trade deficit and lower services surplus. However, it was still in the lows of near 1% of GDP and was comfortably funded by robust capital flows,” said Madhavi Arora, Lead Economist, Emkay Global.
The following quarter (2QFY24) will however see substantial widening of CAD led by sequential worsening of Trade balance, led by higher oil and higher core imports and further slowing services exports. All of this will imply 2Q CAD/GDP ratio could be more than double of 1QFY24 – ranging from 2.4-2.6%, she added.
